Annual Report 2019


Economic development in Austria also lost momentum in 2019 in line with the global economic slowdown. Nevertheless, the Austrian Institute of Economic Research (WIFO) predicts that GDP growth will come to 1.7% thanks to robust expansion in the first six months of the year. Looking ahead to 2020 and 2021, the institute expects figures of 1.2% and 1.4% respectively (Austrian central bank [OeNB]: 1.1% and 1.5%). The Austrian economy is now also on a two-track course: Whereas the foreign trade environment is putting a damper on domestic exports, with a knock-on effect on industrial production, domestic economic drivers, primarily construction activity and the demand for services, are stabilizing the Austrian economy. The substantial growth in real income is also fueling private consumption in Austria, which is expected to have grown by 1.5% in 2019. Domestic demand is likely to remain brisk in the following years, too, growing by 1.6% in each case and therefore remaining one of the main factors driving economic growth. Real income development is also receiving positive impetus from the relatively low level of inflation. Inflation based on consumer prices is expected to have come to 1.5% in 2019, with both the WIFO and the Institute for Advanced Studies (IHS) predicting that this level will remain virtually unchanged over the coming years, too. Experts attribute the low level of inflation primarily to the weaker energy price development.

Employment growth, on the other hand, is dwindling on the back of the moderate economic momentum, and the reduction in unemployment is starting to stall, also due to the sustained increase in the supply of labor. National calculations put the unemployment rate at a predicted 7.3% in 2019, with a slight increase to 7.4% forecast for 2020, a level at which the rate is tipped to remain in 2021.

The WIFO therefore expects that export momentum, which is now only very moderate, will touch on its low point in the spring of 2020 before starting to gain some momentum again. After growth of 2.8% in 2019, exports are expected to increase by 2.3% and 2.9% in 2020 and 2021 respectively (OeNB: 1.7% and 2.8% respectively). This is consistent with the current results of the WIFO Economic Test (Konjunkturtest), which suggests that the economic outlook is looking increasingly gloomy, albeit pointing to considerable differences from sector to sector: Whereas confidence levels among goods manufacturers are low, the assessments in the construction industry and in the economy’s service sectors remain positive.

The unusually long investment cycle reached its end point in 2019 due to the weak global economic development. Nevertheless, high levels of capacity utilization and the favorable financing conditions on offer argue against a complete slump in investment activity. Whereas equipment investments continued to show robust growth of 3.4% in 2019, this figure is expected to slow to 0.3% in 2020 before rising to 2.0% again in 2021. As far as construction investments are concerned, the IHS expects them to fall from 2.3% in 2019 to 1.2% in 2020 as a result of the economic slowdown, before climbing to 1.5% again in 2021.

Austria is also exposed to foreign trade risks, which include economic and geopolitical risks in addition to the uncertainty regarding trade barriers for the exchange of goods with the United States. The longer the resulting slump in the industrial sector continues, the more likely it becomes that this development will spill over to the service sector, which is currently still in robust shape.

With the formation of a new government between the Austrian People’s Party (ÖVP) and the Green Party at the beginning of 2020, it is expected that the overdue tax reform will take priority. These reforms aim to reduce a tax burden that is high in an international comparison and also create incentives to combat climate change.

Overall conditions on the real estate market remain positive. 2019 was characterized by sustained low interest rates, an ongoing good supply of properties despite a slight drop and, in the majority of regions, very high demand for real estate among owner-occupiers and investors alike. At the beginning of 2020, experts from the real estate service provider RE/MAX Austria reported that they do not expect to see any significant change in these conditions in 2020 either. In line with this assessment, the values of the current OeNB residential real estate price index on the basis of new and used condominiums and single-family residences show an increase in Austria in the third quarter of 2019 of 5.2% compared to the previous year. In Vienna, prices increased compared to the previous year by 7.6%. In the rest of Austria (excluding Vienna), price developments were much lower during the same period at 1.8%. According to the consumer price index published by the Austrian statistical office, Statistik Austria, apartment rents rose by 3.0% in 2019. The fundamental price indicator of the OeNB for residential real estate shows a further increase in possible overvaluation for Vienna in the third quarter of 2019, compared with the third quarter of 2018, but recently showed more of a sideways movement for Austria overall. According to the RE/MAX Real Estate Future Index, residential real estate prices are expected to increase slightly again in 2020, although the rate of increase will generally be lower than in previous years. Rents and prices for condominiums will continue to increase both in city centers and on the outskirts of cities, whereas the prices for condominiums in country municipalities will increase slightly while rents, on the other hand, will falter. Apartment purchase prices are likely to increase at a faster rate than rents that can be freely agreed. According to EHL, rents in Vienna are expected to increase on a par with the rate of inflation by around 1.5% in 2020 and 2021, with purchase prices for properties set to rise at a rate well in excess of inflation.

The Austrian Conference on Spatial Planning (ÖROK) reports that the Austrian population has increased considerably in the past and will continue to grow in the future. According to the OeNB, excess demand started to accumulate in the mid-2000s due to smaller household sizes, rising net migration and weak construction activity, a trend that reached its peak in 2016. Bank Austria reports that residential construction activity in Austria has been geared toward addressing the considerable shortage of supply on the residential property market for some years now. An estimated 66,000 units were completed in 2018 – the highest level of construction activity seen in decades – and are likely to have satisfied the current need for housing prevailing in Austria on average. Nevertheless, major supply gaps remain in individual market segments, particularly in the area of more affordable rental apartments. The OeNB reports sustained considerable momentum in residential construction activity, although an imminent slowdown for the construction industry would appear to be on the horizon. Looking at Austria as a whole, the excess demand should have been resolved by 2020, although Vienna is likely to continue to face a shortage of housing even after this year is out.

According to EHL, real estate investment market in Austria reached an all-time high in 2019, with the market volume predicted to remain close to the current record figures in the years to come, too. Preliminary figures suggest that transactions worth a total of just under € 6 billion were executed in 2019. After office properties, institutional residential investments were the second-strongest asset class at approx. 27%.